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It was 2009, and
Bank of America's
BAC 0.24984384759525297%Bank of America Corp.U.S.: NYSEUSD16.05
0.040.24984384759525297%
/Date(1425419755273-0600)/
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44.52777777777778Market Cap
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private bank for the wealthy, U.S. Trust, was in free fall, losing top advisors and clients in a plummeting economy. The firm's newly appointed president, Keith Banks, needed to quickly come up with top-shelf services that would stop unhappy customers from fleeing.

"We were experiencing high asset attrition," Banks says. "We were having difficulty bringing new [asset] flows in for a host of reasons, including that we had low pretax margins, probably one of the lowest in the industry."

Something dramatic had to be done. Banks and his team found an answer of sorts by digging into a 2008 U.S. Trust survey of individuals with $3 million or more in investible assets. That and subsequent studies revealed that 76% of those surveyed weren't confident their children could handle wealth. Worse still was the sentiment held by nearly half of high-net-worth individuals that their wealth had come at a personal cost and had become a family burden.

In 2010, U.S. Trust rolled out its Financial Empowerment program, with its own tailored Website. On the site, next-generation clients, ages 21 to 35, fill out questionnaires that reveal how financially literate they are and what is important to them.

After a U.S. Trust advisor reviews the submissions, he or she sits down with the next-generation client and develops a tailored wealth-management program. That includes not only covering the financial basics -- plans for saving for retirement, structuring a diversified portfolio of investments, and how to use credit wisely -- but also incorporating personal goals, such as planning for marriage and making an impact in philanthropy.

U.S. Trust President Keith Banks
Riku for Barron's

George Reynolds, 61, was one of the clients who stayed on through the bank's rocky period, partly because of the firm's hard work on succession issues.

In the 1990s, Reynolds was the senior vice president of marketing at Starbucks when the Seattle coffee maker was still private and had about 70 stores. After Starbucks exploded in size and went public, Reynolds exercised his stock options and retired. He became a Bank of America client in 2005, but was moved into U.S. Trust soon after the 2007 merger was completed.

A couple of years ago, two of Reynolds' four daughters, ages 26 and 22, had accumulated some savings and began discussions with their dad about how they were ready to move out on their own. Little did they know that their father had built and managed six-figure investment accounts for each of them and was waiting until they were old enough to hand them control of the funds.

So Reynolds made a deal with his daughters: Complete the U.S. Trust financial-empowerment program, and he would sign over their windfalls.

Though the sisters were a bit apprehensive at first, they participated in the program, learning things like how compound interest works and how to sock money away in tax-efficient products. After his daughters completed the program, Reynolds found that they not only had absorbed the course, but also were pointedly engaging him about the family's wealth and were eager to learn more about the family trust that named them as beneficiaries. That started a whole new dialogue between Reynolds and his daughters.

"They learned the vocabulary of investing and economics, but more importantly, they were impressed that they were treated as adults and not patronized," Reynolds recalls. The daughters attended a follow-up session with U.S. Trust, and Reynolds, pleased with the results, handed over their accounts.

As a result of efforts like this, U.S. Trust is back to adding clients and assets. Internal documents that Penta was able to review after talking to sources both in and out of the bank, reveal that U.S. Trust was losing assets rapidly during the financial crisis. But as of Sept. 30, the bank again had $208 billion under management (for all accounts, not just accounts over $5 million, as is normally reported in Penta's wealth-management lists), up from $188 billion in 2009.

Furthermore, the bank now has a healthy $2.9 billion in annual revenue, and the U.S. Trust documents that sources showed us -- after we agreed not to reveal the numbers -- confirm Banks' claim that the firm's pretax margins have recovered, from perhaps the worst in the industry to among the best.

Yet it could so easily have gone the other way.

IN 2007, BANK OF AMERICA paid $3.3 billion to acquire U.S. Trust, the nation's largest trust company. Trouble started showing up almost immediately, as the economy began to tank and advisors began to depart, irritated by BofA's ham-fisted efforts to create synergies. Penta has heard, for example, that U.S. Trust's well-tailored private bankers were ordered to push BofA credit cards on their clients and that execs were considering charging ATM fees to U.S. Trust's wealthy clientele.

A diaspora of disgruntled U.S. Trust advisors wound up at competitors like Glenmede, Rockefeller Financial, and UBS.

Then, when the financial crisis was gathering force, Bank of America added high-risk mortgage lender Countrywide Financial and the fast-crashing Merrill Lynch to its corporate stable, before the federal government forced BofA to accept $45 billion in TARP funds. Some anxious clients began believing the scuttlebutt that the private bank would again be sold.

Adding to the problem: BofA wanted to integrate U.S. Trust through centralized control, while U.S. Trust's managers wanted to keep their independence and maintain their taste for white-wine and canapé events that gave clients the opportunity to rub elbows with top authors and politicians. In short, the leadership of BofA and U.S. Trust were at war over whose vision would win out.

But then Bank of America made a smart move. In 2009, it appointed Banks, now 57, president of U.S. Trust and told him to rebuild the bank. Banks had previously served as president of BofA's wealth-management arm, and the first thing he needed to do was find out why his customers were so unhappy -- and end the firm's internal war.

"We took a snapshot," says Banks, "and said, 'So this is where our company is today and where we need to take it,' and then, 'Let's get going.' "

Forcing the BofA and U.S. Trust executives to focus on the vital task of improving client experiences in a seriously scarred economy -- tasks that only a team could accomplish -- did a great deal to break down fiefdoms and bring people "to a single table."

"We were doing a heck of a lot of work in a relatively short period of time," says Banks, "and we needed to see the result of that over a three-year period—not a slow gradual improvement over five years but truly a step-function improvement." His order in 2009: Get this ship righted by 2012.

Not an easy assignment. While a lot of top-drawer talent left, many underperformers remained, and that essentially meant that Banks had to totally rotate the tires on a car as it hurtled full throttle down a track. Between 2009 and 2012, "we turned over close to 50% of our advisors," he says, and "we got laser-focused on client satisfaction."

The Right Picks?

A snapshot of U.S. Trust's asset-allocation selections for the next 12 months for a moderate-risk model portfolio. The tangible assets would include timberland and farmland.

Asset Allocation for the Next Year

Cash

2%

Equity

53

U.S. large-cap

22

U.S. mid-cap

7

U.S. small-cap

5

International developed

11

Emerging market

8

Fixed income

21

U.S. investment-grade

17

International developed

1

U.S. high-yield

3

Hedge funds

9

Private equity

6

Real estate

5

Tangible assets

4

Total

100%

As of September 2013. Source: U.S. Trust

The personnel shake-up and introduction of more client-focused services have made the bank significantly more profitable. While hiring 126 star advisors since 2009, for example, Banks has also lowered overall head count 11%, to 4,100 employees.

One area Banks did not gut was U.S. Trust's expensive investment-management team. "If you only have open-architecture capabilities" -- such as offering just mutual funds managed by outside firms -- "you've lost the ability to bring any customized solutions, and wealthy clients tend to need customization," Banks observes.

It helps, for example, to have an in-house strategy to spot global opportunities that clients can then act on via targeted products and investments. (To glimpse U.S. Trust's current portfolio recommendations to clients, see the nearby table.)

One such example is Specialty Asset Management, a unit that acquires physical assets, including timberland, for clients, and is drawing triple the attention it did just a few years ago.

Trees provide investors a hedge against inflation and deliver growth, regardless of the state of financial markets. From 1996 to 2012, U.S. timberland produced an average annual return of 10.6%. Meanwhile, regional plays did even better. Pacific Northwest timberland, for example, appreciated by 12.4% a year during that period.

So U.S. Trust put together a timberland- management team for clients (see "Investing in Timber and Farmland," Penta, June 15, 2012) and developed a $250 million-in-assets tree-management business that's relatively modest in size but fast-growing and attractive to the very wealthy.

U.S. Trust's chief fiduciary executive, Chris Heilmann, says the bank's elder-care service has also become a hit. In one instance, as a wealthy entrepreneur traveled the country with his 86-year-old father who needed regular dialysis treatment, U.S. Trust arranged for their client to have registered nurses on call all across the country.

The firm also helped an elderly Washington, D.C., client who fell and was hospitalized while visiting relatives in New York. "Keith [Banks] got a call from one of our advisors, asking what we could do for her," Heilmann says. U.S. Trust not only arranged for her medical transportation back to Washington, but secured in-home health-care assistance while she recovered in her own bed.

In both instances, Heilmann says, money wasn't an issue. Rather, it was "about not knowing where to turn." U.S. Trust became the client's counselor and didn't charge extra for its assistance; the customers in both cases paid only their health-care providers. This is private banking at its best. Comments Heilmann: "When folks know they have a point of contact that will deliver top-quality options, in a timely manner and at a moment's notice," the bank earns client loyalty.

Industry-growth figures suggest that the wealthiest clients want full-service managers who can handle virtually every issue, from trust services to health-care support to training heirs in managing money.

You can see this in Penta's listing of "The Top 40 Wealth Management Firms in America" (Sept. 16, 2013). The top five wealth-management firms in the country, including BofA's U.S. Trust, collected 64% of the industry's total asset growth in the 12 months to June.

In this big-is-better game, U.S. Trust's heavy footprint across 30 states becomes a competitive advantage, allowing it to assign a team of specialists to consult with each client, upfront and personal, regardless of where in the U.S. they reside.

These private-banking teams "are locally based and can be in your living room in half an hour," Banks says. "It's about delivering that boutique feel, while knowing that behind the curtain you have this powerful enterprise called U.S. Trust."

Clearly, Banks' winning formula is all about melding the "high touch" of a small and service-obsessed private bank with the financial capabilities of a financial giant.